Why Alphabet Stock Popped Today

Key Points

• Alphabet announced Google-powered smartwatches will be able to access Gemini AI, starting today.

• Full rollout across devices could take a few weeks.

• Alphabet has been spending heavily on AI development, and its stock looks expensive as free cash flow gets depressed.

• 10 stocks we like better than Alphabet ›

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) stock advanced in artificial intelligence (AI) today, announcing that the company's Gemini personal AI assistant software is coming soon to a smartwatch near you. Alphabet stock jumped 3% on the news initially, before retreating to something more like a 1.2% gain as of 2:45 p.m. ET.

Time for AI investors to "watch" Google

Alphabet broke its big news on Google Blog, explaining that "Wear OS watches, including those from Pixel, Samsung, OPPO, OnePlus and Xiaomi," can access Gemini AI directly starting today (although the full rollout may take "weeks"). With the touch of a button and a command prompt "Hey, Google 2," users can ask Gemini questions right on their wristwatches.

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Image source: Google.

Alphabet confirms Gemini will be able to access users' other Google services, such as Gmail and Google Calendar, as well.

Is Alphabet stock a buy?

This is a pretty great innovation, albeit I'm not 100% clear on how voice-controlled AI will help sell more ads and grow revenue and profit for Alphabet. It might help Alphabet sell more devices, especially Pixel smartphones, or it might not. Pixels still haven't really caught on much, and if Gemini is also available on Samsung smartwatches, this might not help Alphabet's Pixel business much after all.

My biggest concern here is that even if Alphabet improves its competitive position in AI, putting Gemini on more Google users' wrists won't necessarily offset the enormous capital investments Alphabet is sinking into AI -- investments that cost the company $57.7 billion (in capital expenditures) out of the $132.6 billion (in operating cash flow) it brought in over the past year.

At a price-to-free-cash-flow ratio of more than 28, with a long-term growth rate of less than 15%, Alphabet stock still seems too expensive to buy.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.